Natural Grocers by Vitamin Cottage, Inc. — Q1 FY2021 10-Q
Reporting period: Three months ended December 31, 2020; comparison is the three months ended December 31, 2019 unless otherwise noted. The company operated 160 natural and organic grocery and supplement stores in 20 states.
Financial results
| Metric | Q1 FY2021 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $265.0 million | $230.0 million | +15.2% |
| Gross profit / margin | $73.0 million / 27.6% | $60.5 million / 26.3% | +20.7%; margin +1.3 percentage points |
| Operating income / margin | $5.2 million / 2.0% | $2.8 million / 1.2% | +82.7% |
| Net income | $3.6 million | $1.9 million | +94.4% |
| Diluted EPS | $0.16 | $0.08 | Up $0.08 |
| Operating cash flow | $12.3 million | $10.5 million | +$1.9 million |
Comparable-store daily average sales increased 12.7%. Average transaction size rose 21.4% while transaction count fell 7.1%. Management reported a $45.14 comparable-store average transaction size. EBITDA was $12.8 million versus $10.6 million; Adjusted EBITDA was $13.2 million versus $10.6 million. Both are non-GAAP measures.
Liquidity, debt and cash flows
- At December 31, 2020, cash was $24.7 million, current assets were $134.7 million and current liabilities were $125.9 million. Cash was $28.5 million at September 30, 2020.
- The company had $35.0 million outstanding under a new term loan and no revolving-facility borrowings. Revolver availability was $48.7 million, net of $1.3 million of letters of credit. The facility matures November 13, 2024; the company reported compliance with its financial covenants.
- Operating and finance lease liabilities totaled $393.9 million, including $35.1 million current. A further $29.2 million of minimum payments relates to signed leases not yet commenced.
- Investing cash outflow was $3.7 million, compared with $12.0 million a year earlier. Financing cash outflow was $12.5 million, including $46.7 million of dividends, partly funded by the term-loan borrowing. Cash decreased $3.9 million during the quarter.
- Stockholders’ equity declined to $130.2 million from $173.1 million at September 30, primarily reflecting the special dividend.
Material changes and management outlook
- Sales growth primarily reflected pandemic-related demand: comparable-store sales contributed $29.2 million of the $35.0 million increase, and new stores contributed $5.8 million. The company attributed higher baskets and less frequent shopping trips to social-distancing practices and related mandates.
- Gross margin improved with lower occupancy and shrink costs as a percentage of sales and improved product margin. Store expenses grew 17.3%, faster than sales, with labor costs and lease-exit costs contributing to the increase.
- The board approved and paid a special dividend of $2.00 per share in December 2020, alongside the regular $0.07 quarterly dividend. A further $0.07-per-share dividend was approved for payment March 17, 2021.
- Management planned five to six new stores and three to five relocations in FY2021; one new store opened in the quarter. It estimated $24 million to $31 million of capital expenditures for the remainder of FY2021 and approximately $2.2 million of upfront investment per new store.
- Management expected cash, operating cash generation and available revolver capacity to cover working capital and planned capital expenditures for at least the next 12 months. It gave no specific sales or earnings forecast.
- COVID-19 remained a key uncertainty. Management cautioned that elevated sales may not persist after the pandemic and that the duration and economic effects of the pandemic, mandates, supply disruptions, operating costs and changing customer behavior are uncertain. Competition, consumer preferences and the company’s substantial lease commitments are additional risks.
- The company reported no material changes to the Form 10-K risk factors and did not expect pending legal proceedings to have a material adverse effect. A store lease termination generated $0.4 million of lease-exit costs; the company also reported a $0.2 million gain associated with the termination.
Important facts for investors to verify
- Whether pandemic-driven comparable-store growth and larger baskets persist as customer behavior and public-health restrictions change.
- Cash generation and covenant headroom after the $46.7 million dividend and the addition of $35.0 million in term debt.
- Delivery of the planned store openings, relocations and $24–$31 million remaining-FY2021 capital expenditure program.
- Lease obligations, including the $29.2 million of signed leases not yet commenced, and the company’s ability to manage fixed occupancy costs.
- The quarter’s reported special and regular dividends, and the board-approved March 2021 dividend, against liquidity and future capital needs.